Month: July 2022

Representing elder clients can be tricky

Standard

Dirt lawyers may be in the best position to protect elders in real estate transactions

Elderly persons should be treasured, not abused! And, as real estate lawyers, we may be in a particular position to guard against abuses.

Elder abuse often happens at the hands of family members or “friends” who, because of the vulnerabilities associated with age, such as mental impairment, are able to employ methods such as theft, fraud, forgery, extortion and the wrongful use of powers of attorney to separate an elderly person from property or funds.

Reflect upon the numbers of stories you have heard in your community about elderly persons falling prey to telephone scams. Those same individuals would not have succumbed in their prime. Even with all mental facilities in place, they don’t hear as well, they don’t keep up with changes in technology, and they are unable to keep up with fraud trends we all hear about every day.

Here are some signs of elder financial abuse that you may be able to detect in your office:

  • Sudden changes in an elderly person’s estate planning documents;
  • Changes made in the title to properties in favor of a “friend;”
  • Home health aide, housekeeper or other person is added to the accounts of an elderly person or is receiving an assignment of proceeds;
  • Family members or trusted “friend” discourages or interferes with direct communications with an elderly person involved in a transaction;
  • The older person seems unable to comprehend the financial implications of the transaction;
  • The older person signs documents without seemingly knowing or understanding what is being signed;
  • A power of attorney is involved. I’ve told this story many times, but I know a wonderful claims attorney who called powers of attorney “instruments of the devil”. Powers of attorney are extremely useful tools in the real estate world, but we should always exercise caution when they are used, especially when an elderly person is involved;
  • Anyone seems to be forcing the elderly person to act;
  • Numerous unpaid bills may be a clue that someone is diverting the money designated for the daily living of the elderly person;
  • Promises of lifelong care in exchange for property;
  • The elderly person complains that he or she used to have money but doesn’t understand why the money is no longer available;
  • The caregiver is evasive about the specifics of the transaction in the presence of the elderly person;
  • The elderly person seems fearful or reticent to speak in front of a family member, friend, loan officer, real estate agent or anyone involved in the transaction.
  • The accompanying family member or caregiver attempts to prevent the elderly person from interacting with others.
  • The elderly person and the family member or caregiver give conflicting accounts of the transaction, the expenditures or the financial need.
  • The elderly person appears disheveled or without proper care even though he or she has adequate financial resources.

Be mindful of these common-sense suggestions when any of your real estate transactions involve elderly persons. Think of them as you would want someone to think of your parents or aunts and uncles. Be careful to protect their interests. Proceed with caution!

Elders may also be the victims of predatory lending. Elders who own their homes and have built up equity over time become targets of predatory loan originators who pressure them in to high-interest loans that they may not be able to repay. Older homeowners are often persuaded to borrow money through home equity loans for home repairs, debt consolidation or to pay health care costs. These loans may be sold as “miracle financial cures” and are often packed with excessive fees, costly mortgage insurance and balloon payments.

Always discuss transactions directly with your elderly clients. Ask them pointed questions to make sure they understand the transaction.

And, as always, employ your instincts and your common sense.

Check out this interesting “heirs property” article with a SC slant

Standard

I was not familiar with “The Daily Yonder” until a Google search for real estate news revealed an interesting article about heirs’ property. The tag line for The Daily Yonder is “Keep it Rural”.  The articled, with a South Carolina connection, can be read in its entirety here. 

Entitled “Land rich, cash poor—How black Americans lost some of the most desirable land in the U.S.”, the article was written by Sarah Melotte and was dated July 11. It caught my attention because it quoted a South Carolinian, Ercelle Chillis, who said her family’s seven-acre tract off Folly Road in Charleston means so much because it was purchased in 1926 by her father, who saved “pennies and nickels and dimes” to buy it. Chillis’ father died without a will, and his children did not probate his estate. Family members now own the land as heirs’ property.

The article focuses on the precarious nature of owning real estate as heirs’ property. The numbers of owners multiply as the years pass, making it more and more difficult to obtain clear title. Developers may target heirs, purchasing fractional interests to ultimately force a sale by all owners. These sales are often at below-market prices. In the case of natural disasters, relief from FEMA and other entities may be unavailable for properties with title issues.

Historically, many of these properties were in swampy and mosquito infested areas with low property values. The “Gullah Geechee Corridor”, a strip of land once predominantly inhabited by enslaved people, runs along the coasts of North Carolina, South Carolina, Georgia, and northern Florida. We all know that the values of coastal properties have sky-rocketed in recent years.

The article points to several reasons black Americans have lost properties: violence, discrimination, intimidation, and immigration to the North. But legal scholars also blame vulnerable forms of land ownership, such as heirs’ property.

The author points to organizations such as The Sustainable Forestry and African American Land Retention Network, that are attempting to fix this problem. Legal reforms are also being implemented. Notably, in 2016, South Carolina state senator and Emanuel AME shooting victim Clementa Pinckney helped pass The Uniform Partition of Heirs Property Act which allows an heir to purchase other heirs’ interest to avoid forced sales to developers. Other important aspects of this legislation are the requirement of an appraisal and a directive that heirs receive a fair share of the profit.

Read this article for an interesting take on a real estate issue that many South Carolina practitioners confront on a fairly regular basis.

Does real estate “wholesaling” work in our market?

Standard

Maybe, but real estate practitioners should be careful!

A recent discussion on South Carolina Bar’s real estate section listserv surrounded whether and how to close “double closings” vs. “assignments of contracts”.  This is not a novel topic in our market. In the very hot market that preceded the crash beginning in 2007, one of the biggest traps for real estate attorneys was closing flip transactions. Title insurance lawyers fielded questions involving flips on an hourly basis!

Flips have never been illegal per se. Buying low and selling high or buying low and making substantial improvements before selling high are great ways to make substantial profits in real estate.  

Back in the day, we suggested that in situations where there were two contracts, the ultimate buyer and lender had to know the property was closing twice and the first closing had to stand on its own as to funding. In other words, the money from the second closing could not be used to fund the first closing. (Think: informed consent confirmed in writing!)

Where assignments of contracts were used, we suggested that the closing statements clearly reflect the cost and payee of the assignment.

The term real estate investors are using these days to define buying low and selling high is “wholesaling”.  A quick Google search reveals many sites defining and educating (for a price, of course) the process of wholesaling. This is a paraphrase of a telling quote I found from one site:

If you’re looking for a simple way to get started in real estate without a lot of money, real estate wholesaling could be a viable option. Real estate wholesaling involves finding discounted properties and putting the properties under contract for a third-party buyer. Before closing, the wholesaler sells their interest in the property to a real estate investor or cash buyer.

One of the smart lawyers on our listserv, Ladson H. Beach, Jr., suggested that there does not appear to be a consensus among practitioners about how to close these transactions. He suggested reviewing several ethics cases* that set out fact-specific scenarios that may result in ethical issues for closing attorneys.

In addition to the ethics issues, Mr. Beach suggested there may be a licensing issue where an assignor is not a licensed broker or agent. A newsletter from South Carolina Real Estate Commission dated May 2022 which you can read in its entirety here addresses this issue. The article, entitled “License Law Spotlight: Wholesaling and License Law” begins:

“The practice of individuals or companies entering into assignable contracts to purchase a home from an owner, then marketing the contract for the purchase of the home to the public has become a hot topic, nationwide in the real estate industry in recent years. This is usually referred to as ‘wholesaling’. The question is often, “is wholesaling legal?’ The answer depends upon the specific laws of the state in which the marketing is occurring. In South Carolina, the practice may require licensure and compliance with South Carolina’s real estate licensing law.”

The article suggests that the Real Estate Commission has interpreted that the advertising of real property belonging to another with the expectation of compensation falls under the statutory definition of “broker” in S.C. Code §40-57-30(3) and requires licensure. Further, the newsletter suggests S.C. Code §40-57-240(1) sets up an exception; licensing is not required if an unlicensed owner is selling that owner’s property. The Commission has interpreted, according to this article, that having an equitable interest is not equivalent to a legal interest for the purpose of licensing. In other words, a person having an equitable interest acquired by a contract is not the property’s owner and has no legal interest in the property for the purposes of this licensing exemption.

So real estate practitioners have several concerns about closing transactions of this type. Be very careful out there and consult your friendly title insurance underwriter and perhaps your friendly ethics lawyer if you have concerns as these situations arise in your practice.

*In re Barbare (2004), In re Fayssoux (2009), In re Brown (2004) and In re Newton (2007)